The Due Diligence You Should Do Before You Join a Private Equity Fund

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So you want to work in private equity? But how do you know the fund you’re thinking of joining is a good one? The due diligence you do into the fund you’re thinking of joining more or less mirrors the due diligence you will do on any company you consider investing. It will include its strategy and the market it operates in, the management, its performance and the opportunity for future growth. While the big names are great, don’t assume that just because the firm isn’t a household name that it’s not successful. There are numerous under-the-radar private equity houses who are staggeringly successful with a low key profile.You need to look at a fund’s:

  • Strategy, portfolio and the markets in which they operate
  • People and succession planning process
  • Performance and point in the fund-raising cycle
  • Future

Start with available information like the Web site and press coverage and fill in the gaps with incisive questioning of the fund and people in the sector.

This requires a fair degree of tact and sensitivity. However, if you get the tone and style of your questioning right, it will enhance your credibility with the firm. If you get it wrong, you risk antagonizing them.

Consider their:

Strategy and market in which they operate

Make sure the firm is investing in areas you are comfortable with and enthusiastic about.

Deal size can make a difference to your role. Make sure you think the strategy is sustainable. In particular that it will allow them to fund raise successfully next time.

Check out the portfolio, probably listed on the Web site. Make your own assessment of its potential for good returns and the likely timing to exit. Remember though that entry price will influence returns and you are unlikely to be able to get this data from public information. However, a good portfolio has a substantial influence on performance and fund raising ability, so mustn’t be ignored.

Fund performance and where they are in the fund raising cycle

Most firms will tell you the multiple they achieved on their previous funds. If they won’t, then do further investigation.

Find out how much of the current fund they have left to invest and over what time period. Find out when they’re due to start fund raising and what they expect the outcome to be.

You may also, with good questioning, be able to find out what sort of investors they have in their LP base and what the likelihood of them investing in the new fund is.

From all of this, you will be able to assess the longevity of the company and the likely timing of when you personally may receive carried interest. If the current fund is "underwater," this means that no carried interest is likely to be received from the investments in this fund. Do extra careful due diligence on the likelihood of raising future funds before you commit.

People and succession planning process

Have a look on the Web site and look at the people who manage the firm. Estimate how long the partners have served with the firm. If you tie this into the fund raising cycle, you can form a view on the likelihood of leadership change during your first few years of working for the firm. If you think this is going to be imminent, you may want to discuss this with the firm and get a view of the likely path ahead for the company.


Private equity is a long-term business. If you want to be successful at it and reap the rewards, you will need to commit for at least the medium term. So taking a view on the future for the firm is crucial to your investment decision. Put all the previous factors together and make your judgment on its longevity and level of likely success.

And remember, you’ll be contributing to that success, so don’t underestimate the influence you can have and will play in ensuring that performance.

Take your first steps into private equity with your eyes open and use the analytical and commercial skills that you demonstrated to get you the job in the first place to assess your choice and to ensure you make the right personal investment decision before you commit.

Like puppies at Christmas, private equity is a job for life – so go into it with your eyes open and you’ll enjoy a challenging and rewarding career.

Gail McManus is the managing director at Private Equity Recruitment.

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